It appears that referral fees have been saved from the chopping block in the government’s new Justice Bill, unveiled today. Sadly, I believe this botched approach will undermine the aim to reform civil justice in the UK.

Consumers are generally unaware that most insurers and claims management companies make a substantial amount of money out of the personal injury system by charging ‘referral fees’ – where an accident victim’s case is sold to a solicitor for hundreds of pounds.

But instead of addressing these perverse commercial incentives, the Justice Bill represents the latest example of continued failure to tackle the critical and fundamental issue of referral fees – the controversial charges paid by solicitors to insurers and others for obtaining personal injury cases. This repeated inaction comes despite the clarion call for a ban by Lord Justice Jackson in his recent review of civil justice costs in the UK.

The government should have seized the opportunity to tackle one of the most glaring deficiencies in the personal injury market, but instead there has been a total disregard for the groundswell of calls to tackle the issue of referral fees. This is a profoundly disappointing choice which I believe undermines the entire aim of proper reform.

Referral fees damage the system by creating a myriad of perverse commercial incentives which threaten access to justice and cost consumers dearly by pushing up insurance premiums to unsustainable levels.

By reviewing the Association of British Insurers own data, the scale of the commercial incentives involved becomes apparent. In 2008, motor insurers collected £447m in before-the-event (BTE) insurance premiums to cover legal expenses, while only paying out £53m in claims. In that same year, 471,000 BTE claims were notified. Presuming that 75% of these attracted a referral fee of £750, this may have generated in excess of £2.5bn for ABI members.

In addition, there is more potential income for motor insurers in the same period estimated at in excess of £1.25bn from ancillary services such as car hire and medical services. With the market growing drastically since 2008, these figures are likely now to be in the region of £3.16bn referral fee income and £1.58bn in ancillary services.

By skirting the issue of referral fees, we are now left with rushed-through, half-baked legislation which does not implement the transparency, regulation and outright ban of referral fees which the system needs.

In the wake of the leadership vacuum left by the government, it is my profound hope that the industry will pull together and challenge the deeply entrenched commercial interests which add no value to claimants, damage access to justices and present a bad and costly deal to consumers.

John Spencer is director of CS2 Lawyers